<PAGE> 1
- -----------------------------------------------------------------------------
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
/X/ Quarterly Report Pursuant to Section 13 or Section 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended April 3, 1999
OR
/ / Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from _________ to _________.
Commission File No. 0-18033
EXABYTE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 84-0988566
(State of Incorporation) (I.R.S. Employer Identification No.)
1685 38th Street
Boulder, Colorado 80301
(Address of principal executive offices, including zip code)
(303) 442-4333
(Registrant's Telephone Number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past ninety days.
Yes /X/ No / /
As of May 10, 1999, there were 22,646,221 shares outstanding of the
Registrant's Common Stock (par value $0.001 per share).
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<PAGE> 2
EXABYTE CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Page
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets --
April 3, 1999 and January 2, 1999 ............... 3
Consolidated Statements of Operations --
Three Months Ended April 3, 1999
and April 4, 1998 (Unaudited).................... 4
Consolidated Statements of Cash Flows --
Three Months Ended April 3, 1999 and
and April 4, 1998(Unaudited)..................... 5-6
Notes to Consolidated Financial Statements(Unaudited). 7-10
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations....................................... 11-17
Item 3. Quantitative and Qualitative Disclosures About Market
Risk............................................. 18
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K....................... 19-20
<PAGE> 3
PART I Item 1. Financial Statements
EXABYTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
April 3, January 2,
1999 1999
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................... $ 46,332 $ 56,571
Short-term investments....................... 18,118 14,145
Accounts receivable, less allowance
for doubtful accounts and reserves for
customer returns and credits of $7,231 and
$7,830, respectively....................... 38,507 38,014
Inventories, net............................. 30,202 26,997
Deferred income taxes........................ 14,401 14,213
Other current assets......................... 5,617 5,692
-------- --------
Total current assets.................... 153,177 155,632
Property and equipment, net....................... 27,632 28,396
Deferred income taxes............................. 24,320 22,732
Other assets...................................... 996 1,076
-------- --------
$206,125 $207,836
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................. $ 17,644 $ 16,032
Accruals and other liabilities............... 15,136 14,002
Accrued income taxes......................... 2,204 2,370
Current portion of long-term obligations..... 1,872 1,699
-------- --------
Total current liabilities............... 36,856 34,103
Long-term obligations............................. 6,496 7,461
Stockholders' equity:
Preferred stock, $.001 par value;
14,000 shares authorized; no shares
issued..................................... -- --
Common stock, $.001 par value; 50,000 shares
authorized; 22,648 and 22,647 shares
issued and outstanding, respectively....... 66,717 66,716
Treasury stock, at cost, 455 shares.......... (2,742) (2,742)
Retained earnings............................ 98,798 102,298
-------- --------
Total stockholders' equity.............. 162,773 166,272
-------- --------
$206,125 $207,836
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE> 4
EXABYTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
----------------------
April 3, April 4,
1999 1998
------- -------
<S> <C> <C>
Net sales.................................... $62,650 $80,750
Cost of goods sold........................... 47,111 56,904
------- -------
Gross profit................................. 15,539 23,846
Operating expenses:
Selling, general and administrative..... 13,250 13,444
Research and development................ 7,784 7,131
------- -------
Income (loss) from operations................ (5,495) 3,271
Other income (expense), net.................. 192 (196)
------- -------
Income (loss) before income taxes............ (5,303) 3,075
Provision (benefit) for income taxes......... (1,803) 1,046
------- -------
Net income (loss)............................ $(3,500) $ 2,029
======= =======
Basic net income (loss) per share............ $ (0.16) $ 0.09
======= =======
Common shares used in the calculation of
basic net income (loss) per share....... 22,193 22,342
======= =======
Diluted net income (loss) per share.......... $ (0.16) $ 0.09
======= =======
Common and potential common shares used in
the calculation of diluted net income
(loss) per share........................ 22,193 22,460
======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE> 5
EXABYTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended
-----------------------
April 3, April 4,
1999 1998
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Cash received from customers.............. $62,117 $74,164
Cash paid to suppliers and employees...... (65,812) (70,721)
Interest received......................... 763 431
Interest paid............................. (138) (146)
Income taxes paid......................... (120) (135)
Income tax refund received................ 526 194
Net cash provided (used) by ------- -------
operating activities............... (2,664) 3,787
------- -------
Cash flows from investing activities:
Purchase of short-term
investments, net........................ (3,973) (3,730)
Capital expenditures...................... (3,214) (2,400)
Net cash used by ------- -------
investing activities............... (7,187) (6,130)
------- -------
Cash flows from financing activities:
Net proceeds from issuance of
common stock............................ 1 2
Purchase of treasury stock................ -- (996)
Principal payments under long-term
obligations............................. (389) (300)
Net cash used by financing ------- -------
activities......................... (388) (1,294)
------- -------
Net decrese in cash and cash
equivalents............................... (10,239) (3,637)
Cash and cash equivalents at beginning
of period................................. 56,571 47,014
------- -------
Cash and cash equivalents at end
of period................................. $46,332 $43,377
======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE> 6
EXABYTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended
----------------------
April 3, April 4,
1999 1998
-------- --------
<S> <C> <C>
Reconciliation of net income (loss) to net cash
provided (used) by operating activities:
Net income (loss)......................... $(3,500) $2,029
Adjustments to reconcile net income (loss)
to net cash provided (used) by operating
activities:
Depreciation, amortization
and other............................. 3,978 4,294
Deferred income tax provision (benefit). (1,776) 2,956
Provision for losses and reserves
on accounts receivable................ 1,065 3,316
Change in assets and liabilities:
Accounts receivable....................... (1,558) (10,179)
Inventories, net.......................... (3,205) 5,615
Income tax receivable..................... 544 473
Other current assets...................... (469) 6
Other assets.............................. 80 606
Accounts payable.......................... 1,612 (4,015)
Accrued liabilities....................... 1,134 537
Accrued income taxes...................... (166) (1,851)
Other long-term obligations............... (403) --
------- -------
Net cash provided (used) by
operating activities................ $(2,664) $3,787
======= =======
Supplemental schedule of non-cash
investing and financing activities:
Note payable issued to purchase machinery
and equipment........................... $ -- $1,102
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE> 7
EXABYTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1--ACCOUNTING PRINCIPLES
The consolidated balance sheet as of April 3, 1999, the consolidated
statements of operations for the three months ended April 3, 1999
and April 4, 1998, as well as the consolidated statements of cash flows
for the three months ended April 3, 1999 and April 4, 1998, have been
prepared by Exabyte Corporation (the "Company") without an audit. In the
opinion of management, all adjustments, consisting only of normal recurring
adjustments necessary for a fair presentation thereof, have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. It is suggested that these consolidated
financial statements be read in conjunction with the financial statements and
notes thereto included in the Company's January 2, 1999 annual report to
stockholders heretofore filed with the Commission as Part II to the Company's
Annual Report on Form 10-K. The results of operations for interim periods
presented are not necessarily indicative of the operating results for the
full year.
Note 2--NEW ACCOUNTING PRONOUNCEMENT
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"). SFAS 133 prescribes accounting for
changes in the fair value of derivatives. This statement is effective for all
fiscal quarters of all fiscal years beginning after June 15, 1999. The Company
is in the process of assessing the effects of application of this statement,
and believes it will not have a material impact on the Company's consolidated
results of operations. Application may result in the recognition of components
of comprehensive income which are discussed in Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income".
<PAGE> 8
Note 3--INVENTORIES
Inventories consist of the following:
(In thousands)
<TABLE>
<CAPTION>
April 3, January 2,
1999 1999
---------- ---------
<S> <C> <C>
Raw materials and component parts............ $17,829 $16,851
Work-in-process.............................. 1,792 1,931
Finished goods............................... 10,581 8,215
------- -------
$30,202 $26,997
======= =======
</TABLE>
Note 4--ACCRUED LIABILITIES
Accrued liabilities consist of the following:
(In thousands)
<TABLE>
<CAPTION>
April 3, January 2,
1999 1999
---------- ----------
<S> <C> <C>
Wages and employee benefits.................. $ 6,899 $ 6,047
Warranty and other related costs............. 5,281 4,650
Other........................................ 2,956 3,305
------- -------
$15,136 $14,002
======= =======
</TABLE>
<PAGE> 9
Note 5--BASIC AND DILUTED EARNINGS PER SHARE
The calculation of basic and diluted earnings per share ("EPS") is as follows:
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
----------------------
April 3, April 4,
1999 1998
-------- -------
<S> <C> <C>
Basic EPS computation:
Net income (loss).............. $(3,500) $2,029
======= ======
Common shares outstanding...... 22,193 22,342
======= ======
Basic EPS...................... $ (0.16) $ 0.09
======= ======
Diluted EPS computation:
Net income (loss).............. $(3,500) $2,029
======= ======
Shares:
Common shares outstanding.. 22,193 22,342
Dilutive stock options..... -- 118
------- ------
22,193 22,460
======= ======
Diluted EPS.................... $ (0.16) $ 0.09
======= ======
</TABLE>
Excluded from potential common share calculations for the first quarter of
1999 and 1998 were 4,811,000 and 4,109,000 options to purchase shares of common
stock, respectively, because their exercise prices were greater than the
average fair market value of the Company's stock for the period, and as such
they would be antidilutive.
In addition, for the first quarter of 1999, options to purchase 36,000 shares
of common stock were excluded from the diluted computation above because of
their antidilutive effect on net loss per share. Inclusion of these shares
would have resulted in additional dilutive stock options outstanding of 2,000.
Since April 3, 1999, the Company issued 40,300 stock options which could
have a dilutive effect on diluted net income per common share in the future.
Note 6--SEGMENT INFORMATION
In 1998, the Company adopted Statement of Financial Accounting Standards
No. 131 "Disclosures About Segments of an Enterprise and Related Information"
("SFAS 131"). The Company is organized on a divisional basis by product
line. The Company's segments are determined by these product lines which are
engineered, manufactured and marketed by each group. Segments include
8mm drives and media, libraries and service. Certain costs including
administrative, sales, technical support and corporate marketing are not
allocated to the segments and are considered corporate costs. During the
periods presented below, service segment results of operations include a
cross-charge to the other reported segments for actual in-warranty repairs.
<PAGE> 10
The 8mm drives and media segment engineers, manufactures and markets 8mm
technology tape drives. They also market 8mm media. The libraries segment
engineers, manufactures and markets 8mm and DLTtape(TM) automated tape
libraries and solutions. The service segment provides repair services on
drives and libraries which can be both in and out of warranty.
The Company evaluates the performance of its segments and allocates resources
to them based on pre-tax income. All revenues reported herein represent
revenue from external customers and there are no intersegment revenues.
The table below presents information about segments for the respective fiscal
periods:
(In thousands)
<TABLE>
<CAPTION>
8mm
Drives
and Reconciling Consolidated
Media Libraries Service Other Items Totals
------- --------- ------- ------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
THREE MONTHS ENDED 4/3/99:
Revenues from external
customers................. $50,116 $10,128 $5,003 $ -- $ (2,597)(a) $62,650
Pre-tax results............. 10,708 (2,314) 1,013 -- (14,710)(b) (5,303)
THREE MONTHS ENDED 4/4/98:
Revenues from external
customers................. 62,430 13,836 6,657 1,217 (3,390)(a) 80,750
Pre-tax results............. 16,844 963 1,490 721 (16,943)(b) 3,075
</TABLE>
(a) Unallocated reserves for corporate sales programs
(b) Pretax results in corporate departments
Note 7--RECLASSIFICATIONS
Certain reclassifications have been made to historical information to
correspond to the 1999 financial statement presentation.
<PAGE> 11
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
This Form 10-Q contains forward-looking statements within the context of
Section 21E of the Securities Exchange Act of 1934, as amended. Each and
every forward-looking statement involves a number of risks and uncertainties,
including those risk factors specifically delineated and described in Part 1,
Item 1 of the Company's 1998 Form 10-K, filed April 1, 1999("1998 Form 10-K").
The actual results that the Company achieves may differ materially from any
forward-looking statements due to such risks and uncertainties. The Company
has identified by *bold-face* various sentences within this Form 10-Q which
contain such forward-looking statements. Additionally, words such as
"believes," "anticipates," "expects," "intends," and similar expressions are
intended to identify forward-looking statements, but are not the exclusive
means of identifying such statements. The Company undertakes no obligation to
revise any forward-looking statements in order to reflect events or
circumstances that may arise after the date of this report.
YEAR 2000 COMPLIANCE
The phenomenon, known generally as the Year 2000 problem, involves the
potential inability of information or other data-dependent systems to
properly distinguish year references as of the turn of the century.
The Company believes the Year 2000 problem represents a material risk
to the Company.
The Company itself is heavily dependent upon the proper functioning of its own
computer or data-dependent systems, including, but not limited to, its systems
in areas such as information, business, financial, operations, manufacturing
and service. Any failure or malfunctioning on the part of these or other
systems could adversely affect the Company in ways that are not currently
known, discernable, quantifiable or otherwise anticipated by the Company.
In mid-1997, Exabyte formed an internal task force to evaluate those areas of
the Company that may be affected by the Year 2000 problem and devised a plan
for the Company to become Year 2000 compliant in a timely manner (the "Plan").
To date, the Company is executing according to its Plan. An inventory of all
critical systems has been completed. Systems upgrades, which are Year 2000
compliant, have been completed or are planned during 1999 in response to
normal business needs. *The Company anticipates completing the remaining
portions of the Plan during the third quarter of 1999, with testing of these
systems being completed during the fourth quarter of 1999.* In addition, the
Company's subsidiaries are in the process of being incorporated into the
Company's Plan to become Year 2000 compliant. *Exabyte anticipates that all
subsidiaries are or will be Year 2000 compliant by the third quarter of 1999.*
There can be no assurance that the Company will be able to upgrade any or all
of its, or its subsidiaries', major systems in accordance with the Plan or,
once upgraded, that the systems will be Year 2000 compliant. Should the
Company fail to upgrade such systems in a timely manner, or should those
upgrades fail to be Year 2000 compliant, the Company may be unable to conduct
business or manufacture its products, which could cause a material adverse
effect on the Company's results of operations.
The Company's suppliers (particularly sole-source and long lead-time
suppliers) and key customers may be adversely affected by their respective
failure to address the Year 2000 problem. Should any of the Company's
suppliers encounter Year 2000 problems that cause them to delay manufacturing
or shipments of key components to Exabyte, the Company may be forced to delay
<PAGE> 12
or cancel shipments of its products, which would have a material adverse
effect on the Company's results of operations. Additionally, any inability of
Exabyte's key customers to become Year 2000 compliant which would cause them
to delay or cancel substantial purchase orders or delivery of Exabyte's
products would also have a material adverse effect on the Company's results of
operations. The Company is currently addressing the Year 2000 readiness of
its suppliers and customers, as well as each of their respective suppliers,
to address their Year 2000 readiness in a timely manner; however, there can
be no assurance that any such effort will be successful. Letters have been
sent to critical suppliers for information to assess their readiness. *The
Company anticipates that this effort will continue throughout 1999.*
Exabyte has incurred to date no incremental material costs associated with its
efforts to become Year 2000 compliant, as the majority of the costs have
occurred as a result of normal upgrade procedures. *Furthermore, the Company
believes that future costs associated with its Year 2000 compliance effort will
not be material.*
Currently, the Company is developing a contingency plan should the Company be
unsuccessful in its efforts to become Year 2000 compliant. *The Company
anticipates that its contingency plan should be finalized by the third
quarter of 1999. The Company could incur significant material costs related
to its contingency plan.* Such material costs are currently unknown but may
include costs associated with creating a buffer stock of the Company's products
or other such measures the Company feels is necessary to maintain operations
should the Company face adverse difficulties relating to the Year 2000 problem.
*The Company believes that the tape drives and tape libraries manufactured or
produced by the Company do not use and have not used date data in order to
meet stated functional performance characteristics. The Company further
believes such products accurately process date data (including, but not
limited to, calculating, comparing and sequencing) from, into and between the
twentieth and twenty-first centuries, including leap year calculations,
provided such products operate in accordance with the Company's published
specifications, and further provided that all hardware, third-party software
and firmware used in combination with the Company's products properly exchange
date data with such products.* However, there can be no assurance that the
Company's products will function in this manner. Any failure of the Company's
product to perform in accordance with specifications could result in the loss
of critical user data, resulting in claims against the Company for damages
arising from such data loss, which could have a material adverse effect on the
Company's results of operations.
*In addition, Exabyte believes that many companies in the high technology
industry will face significant litigation in the future regarding problems
caused by Year 2000 noncompliance. Because Exabyte operates in the high
technology industry, the Company believes that it may be the subject of such
litigation, which could have a material adverse effect on the Company's
results of operations.*
YEAR 2000 CUSTOMER DEPENDENCE
Furthermore, many of the Company's customers and end-users of Exabyte products
are currently completing testing of their existing business products (including
the Company's products) for Year 2000 compliance. Because of the nature of the
Year 2000 problem, as well as the complexity and costs associated with such
testing procedures, it is possible that some of these customers and/or end-
users will not purchase additional products (including the Company's products)
following the completion of their Year 2000 testing until after the fourth
<PAGE> 13
quarter of 1999. Should this occur, Exabyte may experience a substantial
shortfall in the sale of its products during the latter part of 1999, which
could have a material adverse effect on the Company's results of operations.
RESULTS OF OPERATIONS
The following table sets forth unaudited operating results for the three
month periods ended April 3, 1999 and April 4, 1998 as a percentage of sales in
each of these periods. This data has been derived from the unaudited
consolidated financial statements.
<TABLE>
<CAPTION>
Three Months Ended
---------------------
April 3, April 4,
1999 1998
------- -------
<S> <C> <C>
Net sales.................................... 100.0% 100.0%
Cost of goods sold........................... 75.2 70.5
----- -----
Gross profit................................. 24.8 29.5
Operating expenses:
Selling, general and administrative........ 21.2 16.7
Research and development................... 12.4 8.8
----- -----
Income (Loss) from operations................ (8.8) 4.0
Other income (expense), net.................. 0.3 (0.2)
----- -----
Income (loss) before income taxes............ (8.5) 3.8
Provision (benefit) for income taxes......... (2.9) 1.3
----- -----
Net income (loss)............................ (5.6)% 2.5%
===== =====
</TABLE>
NET SALES
Net sales for the first quarter of 1999 decreased to $62.7 million from $80.8
million for the same period in 1998. This 22.4% decrease results mainly from
decreased sales of end of life drives (8205/8505, 8700 and minicartridge
products), Eliant(TM) 820 drives and 8mm libraries. These decreases were
partially offset by increases in sales of media, DLT libraries and
Mammoth/Mammoth LT drives. Sales of 8205/8505 drives decreased to $258,000 in
the first quarter of 1999 from $9.5 million for the same period in 1998.
During these same periods, Eliant(TM) 820 sales decreased to $9.7 million from
$17.2 million and 8mm library sales decreased to $6.4 million from $11.6
million. Sales of Mammoth drives increased to $17.6 million in the first
quarter of 1999 compared to $16.9 million for the same period in 1998. Mammoth
LT drives, which were first sold during the first quarter of 1999, represented
$900,000 of sales during the period. Media sales increased to $21.1 million in
the first quarter of 1999 from $16.6 million in the first quarter of 1998 and
DLT library sales increased to $3.9 million in the first quarter of 1999 from
$1.9 million for the same period in 1998.
<PAGE> 14
The previous discussion focuses on the most significant changes in the
Company's sales by product, although there were also fluctuations in sales of
other products. The following table presents the Company's sales by product as
a percentage of total net sales for the first quarters of 1999 and 1998:
PRODUCT MIX TABLE
(As a percentage of net sales)
<TABLE>
<CAPTION>
Three Months Ended
------------------
April 3, April 4,
1999 1998
------- -------
<C> <C>
8mm drives:
Mammoth, Mammoth LT
and Eliant(TM)820................... 45.0% 42.3%
Libraries:
10h, 210, 220, 440, 480, X200, EZ17,
17D, 18D, 230D and 690D.............. 16.4 16.8
Other end-of-life drives and libraries. -- 18.2
Media.................................. 33.6 20.5
Service, spares and other.............. 7.2 7.0
Sales allowances....................... (2.2) (4.8)
----- -----
100.0% 100.0%
===== =====
</TABLE>
The customer mix shifted to reseller customers from original equipment
manufacturers ("OEM's") in the first quarter of 1999 compared to the same
period in 1998. Comparing absolute dollars for these periods, OEM sales
decreased 34% and reseller sales decreased by 10%. The following table details
the sales to different customer types as a percentage of total net sales for
the first quarters of 1999 and 1998.
CUSTOMER MIX TABLE
(As a percentage of net sales)
<TABLE>
<CAPTION>
Three Months Ended
------------------
April 3, April 4,
1999 1998
------- -------
<S> <C> <C>
Customer Type:
- ------------------
OEM.................................... 40.3% 47.4%
Reseller............................... 55.7 47.8
End-user and other..................... 4.0 4.8
----- -----
100.0% 100.0%
===== =====
</TABLE>
<PAGE> 15
The following table summarizes sales to major customers:
SALES TO MAJOR CUSTOMERS
(As a percentage of net sales)
<TABLE>
<CAPTION>
Three Months Ended
------------------
April 3, April 4,
1999 1998
------- -------
<S> <C> <C>
Customer:
- ----------
Reseller A............................. 15.0% 11.5%
OEM B.................................. 14.9 12.7
OEM C.................................. 11.0 12.0
</TABLE>
No other customers accounted for 10% or more of sales in any of these periods.
*Since these and other major customers also sell competing products and
continually review new technologies, there can be no assurance that sales to
these or any other customers will continue to represent the same portion of
the Company's future revenue.*
GROSS MARGIN
During the first quarter of 1999, the gross margin percentage was 24.8%, a
decrease from 29.5% during the first quarter of 1998. Margins were negatively
impacted by lower revenues which are tied to a relatively fixed manufacturing
cost structure, as well as a weaker dollar versus the yen which increased the
cost of certain Japanese components. Additionally, during the first quarter of
1999, inventory reserve costs related to products which are approaching or have
reached end-of-life status have increased over the same period in 1998.
OPERATING EXPENSES
Selling, general and administrative expenses decreased to $13.3 million in the
first quarter of 1999 from $13.4 million for the same period in 1998.
Increased advertising related to the reintroduction of Mammoth impacted 1998,
while no such programs took place in the first quarter of 1999.
Research and development expenditures increased to $7.8 million during the
first quarter of 1999 compared to $7.1 million for the same period in 1998.
Increases are the result of increased spending to support the planned release
of certain announced products during 1999.
OTHER INCOME (EXPENSE), NET
Other income (expense), net consists primarily of interest income and expenses,
foreign currency translation gains and losses, and other miscellaneous items.
Other income for the first quarter of 1999 was $192,000 compared to $196,000 of
expense for the same period in 1998. This change is the result of increased
interest income due to higher invested cash balances and a switch to higher-
yielding taxable investments.
<PAGE> 16
TAXES
The provision for income taxes for the first quarter of 1999 and 1998 was 34%
of income before taxes. **The effective tax rate for fiscal 1999 is expected
to be approximately 34%.** The Company currently has recorded $38.7 million in
deferred tax assets. Management has evaluated the available evidence about
future taxable income. **Based on the weight of available evidence, both
positive and negative, management considers it to be more likely than not that
these deferred tax assets will be fully realized. If, in the future, the
Company determines that these assets are impaired due to changes in income
projections, future deferred tax assets may not be recorded and reserves may be
established against the existing deferred tax assets which may have a material
adverse impact on the tax rate and on the results of operations of the
Company.**
NET INCOME (LOSS)
Basic net loss per share for the first quarter of 1999 was $0.16 compared to
basic net income per share of $0.09 for the first quarter of 1998. Net income
for 1999 was adversely impacted by the decrease in net sales and gross margin
from the same period in 1998.
LIQUIDITY AND CAPITAL RESOURCES
During the first three months of 1999, the Company expended $2.7 million of
cash for operating activities, expended $3.2 million for capital equipment and
expended $389,000 on long-term obligations. Together, these activities
resulted in a net decrease in the combined balance of cash and short-term
investments of $6.3 million to a quarter-ending balance of $64.4 million.
The Company's working capital decreased to $116.3 million at April 3, 1999
from $121.5 million at January 2, 1999.
The Company has a $7.5 million bank line of credit which expires May 15, 2000.
Borrowings under this agreement, are limited to 80% of eligible accounts
receivable plus 25% of eligible inventory (limited to $3,000,000 of inventory).
The ability to borrow under this line of credit is dependent upon the Company's
adherence to a set of financial covenants. Additionally, payment of dividends
is prohibited without prior bank approval. On May 10, 1999 the amount
available under the line was $7.5 million and no borrowings were outstanding.
Borrowings under the line of credit bear interest at the lower of the bank's
prime rate or LIBOR + 2%. Offsetting the amount available under the line of
credit is a letter of credit which secures certain leasehold improvements made
by the Company's subsidiary in Germany. This letter is currently for DM
1,200,000 and decreases by DM 100,000 in August of each year until it is fully
depleted. **The Company anticipates that that it will renew this line at
comparable terms upon its expiration.**
*The Company believes its existing sources of liquidity and funds expected to
be generated from operations will provide adequate cash to fund the Company's
anticipated working capital and other cash requirements through fiscal 1999.*
<PAGE> 17
NEW ACCOUNTING PRONOUNCEMENT
Information concerning new accounting pronouncements is incorporated by
reference from Item 1, "Notes to Consolidated Financial Statements," under the
caption, "New Accounting Pronouncement".
MARKET RISK
The Company enters into foreign currency forward contracts in anticipation of
movements in the dollar/yen exchange rate to hedge the purchase of certain
inventory components from Japanese manufacturers. Contracts are established
with a maturity date within six months of the purchase date. To be considered
a hedge, contracts must be established for future purchases denominated in yen.
In circumstances where the timing of hedged purchases is deferred, the contract
maturity dates are extended to cover the deferred payment. At April 3, 1999,
there were $869,000 in contracts outstanding.
<PAGE> 18
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Information concerning the Company's market risk is incorporated by reference
from Item 2, "Management's Discussion and Analysis of Financial Condition and
Results of Operations," under the caption, "Market Risk".
PART II.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit Index
Exhibit
Number Description
------- -----------
27.0 Financial Data Schedule-Part I Exhibit
(b) Reports on Form 8-K: There were no reports on Form 8-K for the
three month period ended April 3, 1999.
<PAGE> 19
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant had duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EXABYTE CORPORATION
Registrant
Date May 18, 1999 By /s/ Stephen F. Smith
----------------------- -----------------------------------
Stephen F. Smith
Vice President, Chief Financial
Officer, General Counsel &
Secretary (Principal Financial
and Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE CONSOLIDATED BALANCE SHEET AS OF APRIL 3, 1999 AND THE
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED
APRIL 3, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-01-2000
<PERIOD-END> APR-03-1999
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0
0
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<INCOME-PRETAX> (5,303)
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